Purchase Solution

Return on stocks, bonds & preferred stock

Not what you're looking for?

Ask Custom Question

1. Suppose a stock had an initial price of $84 per share, paid a dividend of $2.25 per share during the year, and had an ending share price of $92. What was the dividend yield? What was the capital gains yield? What was the total return?
2. You bought one of Acme Corporation's 8 percent coupon bonds one year ago for $960.00. These bonds make annual payments and mature 5 years from now. Suppose you decide to sell your bonds today, when the required return on the bonds is 7.4%. If the inflation rate was 3.4% over the past year,,what would be your total real return on investment?
3. You bought a share of 8.5% preferred stock for $103.00 last year. The market price for your stock is now $98.50. What is your total return for last year?
4. A stock has an expected return of 12 percent, its beta is 1.3, and the risk-free rate is 4 percent. What must the expected return on the market be?

Attachments
Purchase this Solution
Solution Summary

The solution provides answers to 4 questions on returns on stocks, bonds, preferred stock and market.

Solution Preview

See attached files.

1. Suppose a stock had an initial price of $84 per share, paid a dividend of $2.25 per share during the year, and had an ending share price of $92. What was the dividend yield? What was the capital gains yield? What was the total return?
Initial price= $84.00
Dividend= $2.25
Ending price= $92.00

Dividend yield= 2.68% =2.25/84
Capital gains yield= 9.52% =(92-84)/84
Total return= 12.20% =(2.25+(92-84))/84

Answer:
Dividend yield= 2.68%
Capital gains yield= 9.52%
Total return= 12.20%

2. You bought one of Acme Corporation's 8 percent coupon bonds one year ago for $960.00. These bonds make annual payments and mature 5 years from now. Suppose you decide to sell your bonds today, when the required return on the ...

Purchase this Solution
Free BrainMass Quizzes
Business Ethics Awareness Strategy

This quiz is designed to assess your current ability for determining the characteristics of ethical behavior. It is essential that leaders, managers, and employees are able to distinguish between positive and negative ethical behavior. The quicker you assess a person's ethical tendency, the awareness empowers you to develop a strategy on how to interact with them.

Lean your Process

This quiz will help you understand the basic concepts of Lean.

Employee Orientation

Test your knowledge of employee orientation with this fun and informative quiz. This quiz is meant for beginner and advanced students as well as professionals already working in the HR field.

Situational Leadership

This quiz will help you better understand Situational Leadership and its theories.

IPOs

This Quiz is compiled of questions that pertain to IPOs (Initial Public Offerings)

View More Free Quizzes
Related BrainMass Solutions

  • Bonds that pay interest forever

    Are there preferred stocks that are evaluated similarly to perpetual bonds and other preferred stocks that are more like bonds with finite lives? Explain.

  • Beginner Stocks and Bonds Knowledge

    The expert contrasts the differences/similarities of common stocks and bonds. The possible forms in which a return could be received for bonds, common stocks and preferred stocks.

  • Valuation of Bonds & Stocks

    Since preferred stocks have a fixed dividend, the value of a share of preferred stock is computed by: Value of PS = Dividend / (Required rate of return) Common stocks do not have fixed dividends.

  • total return

    This post describes total incomes on common stock- Income stocks vs growth stocks and preferred stocks vs common stocks is examined.

  • Johnson Industries Cost of Capital

    Johnson Industries provides the following information on the company's common stocks, preferred stocks and bonds: The company can issue a bond at yield to maturity of 7.85%. The company pays a dividend on preferred stock of $4.76.

  • Similarities and Differences of Stock and Bonds

    566115 Compare Stock to Bonds How are stocks and bonds similar and different? How are they used in the corporate world? Describe the possible forms a return could be earned on bonds, common stock and preferred stock.

  • Explain why preferred stock is sometimes considered a hybrid

    Equation to value preferred stocks: Preferred stock's value= Preferred div/required rate of return or present value of all of the dividends(fixed amount of dividend) + present value of the stock at the sale price.

  • Efficient or optimal portfolio using beta as a selection measure

    Second, maintaining common and preferred stocks is more efficient than having common stock or preferred stock alone.

  • Bond and Stock Valuations

    In this case, the valuation method for preferred stock would remain the same; wherein we take the dividend and divide that by the expected return on preferred stock.

  • Compare preferred stock to debt instruments.

    Yields on preferred issues tend to be a higher rate of return over bonds, but the preferreds are not as sensitive to market changes as bonds are. 5. Information about a company's preferred stock is more accessible to potential stockholders.

View More Related Solutions